The pound took a hit after news that mortgage lending in the UK slumped to a three year low in July, reawakening talk of more interest rate reductions in the months ahead. At 0853 GMT, the pound was at 1.7885 usd from 1.7917 usd before the news while the euro rose to 0.6830 stg from 0.6821 stg. The Bank of England revealed today that mortgage lending during the month rose by just 6.5 bln stg, down from 7.1 bln stg the previous month and way below the 7.2 bln stg rise predicted by analysts. The July increase was the lowest since June 2002, when mortgage lending rose by 5.6 bln stg. The data comes on the back of a weak retail sales survey released overnight. In its quarterly survey of the sector, the Confederation of British Industry revealed that 20 pct of retailers said the overall business outlook, which includes sales volume, price, cost and supply issues, will deteriorate over the next quarter compared to just over 13 pct who say it will improve. Over recent weeks, the pound has been moving with the ebb and flow of UK interest rate expectations. The situation is expected to continue with each piece of economic data. In August, the central bank effected its first rate cut in two years in order to shore up flagging consumer spending levels and in the process prompting talk that more reductions will follow. The pound slid lower. But things changed with news that CPI inflation had vaulted over the 2.0 pct target to its highest level since the series began in 1997. The pound rose as players scaled back rate cut hopes. The currency's gains then accelerated when the minutes of the Bank of England's August rate setting deliberations showed a narrow 5-to-4 vote for a cut. Additionally, it was revealed the reduction was not backed by BoE governor Mervyn King.